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Income Tax Act 2007

Timing and quantifying rules - Financial arrangements rules

EW 31: Base price adjustment formula

You could also call this:

"A formula to work out income or expenses when buying or selling something over time."

You calculate a base price adjustment using a formula. You use this formula for the income year when section EW 29 applies to you. The formula helps you work out your income or expenditure.

If your base price adjustment is positive, it is income under section CC 3. But it is not income if it comes from things you spent money on in earlier years and you were not allowed to claim a deduction for them. If your base price adjustment is negative, it is expenditure and you can claim a deduction for it under certain sections.

The formula is consideration minus income plus expenditure plus amount remitted. Consideration is all the money paid to or by you for a financial arrangement, minus some fees. Income is money you earned from the arrangement in earlier years. Expenditure is money you spent on the arrangement in earlier years. Amount remitted is money that was forgiven or cancelled, but not by you.

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This page was last updated on

View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1515304.

Topics:
Money and consumer rights > Taxes
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EW 30: When calculation of base price adjustment not required, or

"When you don't need to calculate base price adjustments for financial arrangements"

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EW 32: Consideration for agreement for sale and purchase (ASAP) of property or services, hire purchase agreement, specified option, or finance lease, or

"How to determine the value of property or services in various agreements"

Part ETiming and quantifying rules
Financial arrangements rules

EW 31Base price adjustment formula

  1. A person calculates a base price adjustment using the formula in subsection (5).

  2. The person calculates the base price adjustment for the income year in which section EW 29 applies to them.

  3. A base price adjustment, if positive, is income, under section CC 3 (Financial arrangements), derived by the person in the income year for which the calculation is made. However, it is not income to the extent to which it arises from expenditure incurred by the person under the financial arrangement in earlier income years and for which a deduction was denied in those income years.

  4. A base price adjustment, if negative, is expenditure incurred by the person in the income year for which the calculation is made. The person is allowed a deduction for the expenditure under sections DB 6 to DB 8 (which relate to deductions for interest) or, if none of those sections applies, under section DB 11 (Negative base price adjustment).

  5. The formula is—

    consideration − income + expenditure + amount remitted.

    Where:

    • The items in the formula are defined in subsections (7) to (11).

    • Consideration is all consideration that has been paid, and all consideration that is or will be payable, to the person for or under the financial arrangement, minus all consideration that has been paid, and all consideration that is or will be payable, by the person for or under the financial arrangement. For the purposes of this subsection, the following are ignored:

    • non-contingent fees, if the relevant method is not the IFRS financial reporting method in section EW 15D:
      1. non-integral fees, if the relevant method is—
        1. the IFRS financial reporting method in section EW 15D:
          1. the modified fair value method in section EW 15G.

          2. If any of sections EW 32 to EW 48, or EZ 52D applies, the consideration referred to in subsection (7) is adjusted under the relevant section.

          3. Income is—

          4. income derived by the person under the financial arrangement in earlier income years; and
            1. dividends derived by the person from the release of the obligation to repay the amount lent; and
              1. income derived under section CF 2(2) and (3) (Remission of specified suspensory loans).

                1. Expenditure is expenditure incurred by the person under the financial arrangement in earlier income years.

                2. Amount remitted—

                3. is an amount (a remission) that is not included in the consideration paid or payable to the person because it has been remitted—
                  1. by the person; or
                    1. by law; but
                    2. does not include a remission that is self-remission.

                      Compare
                      Notes
                      • Section EW 31(4): amended (with effect on 1 April 2008), on (applying for the 2008–09 and later income years), by section 34(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
                      • Section EW 31(7): amended (with effect on 1 April 2008), on (applying for the 2008–09 and later income years), by section 140(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
                      • Section EW 31(7): amended (with effect on 1 April 2008), on , by section 147(1)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                      • Section EW 31(7): amended (with effect on 1 April 2008), on , by section 147(1)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                      • Section EW 31(7): amended, on , by section 379(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
                      • Section EW 31(7)(a): substituted (with effect on 1 April 2008), on (applying for the 2008–09 and later income years), by section 140(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
                      • Section EW 31(7)(b): replaced, on (with effect on 1 April 2008), by section 80(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
                      • Section EW 31(8): amended, on , by section 41 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
                      • Section EW 31(9)(a): amended (with effect on 1 April 2008), on , by section 147(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                      • Section EW 31(11): replaced (with effect on 1 April 2011 and applying for income years beginning on or after that date), on , by section 73(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                      • Section EW 31 list of defined terms fair value method: inserted, on (with effect on 1 April 2008), by section 80(2) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
                      • Section EW 31 list of defined terms IFRS: inserted, on , by section 379(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
                      • Section EW 31 list of defined terms non-integral fee: inserted, on , by section 379(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
                      • Section EW 31 list of defined terms self-remission: inserted (with effect on 1 April 2011), on , by section 73(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).